R and D Claims - Your Questions Answered

R&D Tax Relief is available to UK limited companies, using science or technology as part of an innovative process/product. The technology must be innovative; being commercially innovative is not enough.

There are two variants of the scheme – large company (RDEC) and small company. Small companies that have received subsidies or grant funding may need to use the large company scheme.

The small company’s scheme is much more beneficial – paying the company upwards of 19% (typically 24.75%, maximum 33.35% depending on taxable profit/loss) of qualifying R&D costs. The large company scheme typically benefits by just under 10% of R&D cost.

The specific questions an R&D consultant answers to demonstrate a qualifying project varies. The basis is the key points in the BIS Guidelines. Good questions to consider include:

• what was the advance in knowledge or capability in an area of science or technology that was being sought?
• what was the baseline in the science or technology from which the advance was sought or in what way does the project go beyond what was the current state of knowledge or capability?
• what the R&D project was and if relevant, what the larger commercial project was?
• the particular scientific or technological uncertainties that needed to be resolved to seek the advance?
• why the knowledge or capability sought was not readily deducible by a competent professional in the field?
• when the particular uncertainties were overcome?
• how were the uncertainties overcome?
• why were the uncertainties not readily deducible by a competent technical professional in the field?
• what costs are associated with resolving the uncertainties? Are those costs qualifying?

You need to understand the context of the HMRC Guidelines to fully understand these questions. They are about more than just an individual understanding of the words. The Guidelines are lengthy and don’t even clearly explain every term but explain many of them; but if you do understand them and can describe an overall advance in a field of science or technology being attempted, and the associated scientific or technological uncertainties, you have the basis of an R&D claim. Our experienced Consultants will help simplify the process as much as possible and can relate the Guidelines to your specific industry sector and business activities.

Yes, under the SME scheme loss making companies can claim and have the choice of either a payable R&D tax credit or carrying a loss forward.

For a large company or a small company claiming under RDEC, a loss-making company can claim an RDEC. A payable RDEC is calculated based on several caps and offset. Providing a loss-making company has enough PAYE on R&D staff to cover the RDEC amount an RDEC will be paid. If it does not RDEC can be used for other tax liabilities or group relief. If RDEC remains after these offsets it is carried forward to the next year and the same steps are repeated. RDEC is more straightforward for companies where the corporation tax due is greater than the RDEC as the RDEC can be used to offset CT due or already paid.

This is well covered in our section on “benefits” under R&D Tax Claims. We suggest trying our estimator tool. In less specific terms for years where the corporation tax rate is 19% a claim that just generates tax relief is worth 24.7% of qualifying costs, and R&D Tax Credit Claim is worth between 18.85% & 33.35% depending on the tax position, and RDEC is worth 9.72% assuming it is payable after caps and offsets.

HMRC do not have a KPI for claims involving tax relief, payment times depend on the processing speed of your Corporation Tax Office. These are generally good, and 4-6 weeks is not untypical. For an SME payable R&D Tax Credit the KPI is 95% in 28 days. HMRC, in recent years, 2018 & 2019, have not been achieving this and claims have been taking 12-16 weeks to get paid. No KPI exists for RDEC and recent processing has been very slow.

HMRC are trying to improve processing times and we do get a weekly email on those times from HMRC through our RDCC membership.   HMRC can make checks on claims and this process does delay payment until they are satisfied with the claim detail. In some circumstances they will release interim payments as part of that process.

In most circumstances. But under the SME scheme if existing losses or other reliefs, group or charity for example, have relieved profits then all an R&D claim might to is replace those reliefs. It is important to consider the specifics of the tax position early in an R&D claim to see if a claim will be worthwhile in cash terms. Sometimes increasing/preserving losses can be as valuable as gaining cash if those losses can be used for tax relief. Under the RDEC steps involving caps and offsets it is possible that all a claim will do is create an RDEC to carry forward. Turning this into cash will depend on future years calculations through the RDEC steps. RDEC will always be cashflow positive for profitable companies as step one is offset against corporation tax.

To be an SME a company must pass two tests.

1. Under 500 employees.

Pass move to test 2, fail you are a large company for R&D purposes.

2. Below one of the following. Balance sheet €86 million and turnover €100 million.

Below on one or both thresholds you are an SME. Over on both you are a large company.

The picture is slightly muddied by the fact that linked and partner enterprises may have to be included and in some places different types of owning companies or individuals are treated differently. A specialist helps with fully understanding these rules and definitions.

The flowchart from HMRC is a useful starting point in finding out what should be considered.

If the change is organic the status does not change until the second year where it has also been achieved. So, if an SME organically becomes a large company in year 1 and is also a large company in year 2 it could make an SME claim in year 1 and would need to claim under RDEC is year 2.

If the change is due to a takeover or sale of a group company the change in status is immediate.

We always recommend that an SME being taken over by a large company should consider shortening an accounting period to the day before the takeover to get the benefit of being able to make an SME R&D claim for the period before the takeover. What matters is where a company is in terms of the SME test thresholds at the end of an accounting period.

One of the key conditions to be satisfied is that a company is trading as a going concern. If a company is liquidated or its registration ceases it cannot make an R&D claim. If any control can be exerted over these matters for example absorbing a bought limited company, it makes sense to make the R&D claim before the status is changed otherwise the opportunity is lost forever to claim.

The key issue is: “is the entity subject to UK corporation Tax”. LLPs don’t pay corporation tax, and charities are normally exempt. Some categories of not for profits do qualify like Community Interest Companies who would pay Corporation Tax on profits if they made them.

To claim an entity must be subject to corporation tax. Sole Traders and Partnerships made up of individuals do not qualify.

A joint venture/partnership made up of limited companies would qualify but the individual limited companies would claim depending on how the costs were split in the partnership.

No. Companies in a group would claim as limited companies. Group relief might be a factor to consider in calculating the claim benefit. Groups must be considered collectively in terms of assessing SME status. Group companies cannot apply for advanced assurance if another group company has already made an R&D claim. Group relief is one of the steps in assessing a payable RDEC.

The biggest difference is the accountancy handling. An SME R&D claim generates an enhanced deduction which reduces profits, creates losses or increases losses. An SME claim is purely a tax adjustment in the accounts and not taxed. An RDEC claim is a completely different mechanism, as it is a straight percentage of the qualifying cost treated as income. This increases profits, and potentially could turn a loss into a profit or reduces losses. RDEC involves an “above the line” accounts entry and as such is taxed. Getting an R&D Tax Credit is more straightforward than a payable RDEC which involves a multiple step process of offsets and caps. RDEC does not involve enhanced expenditure.

In terms of qualification the Guidelines are the same, but some issues are treated differently for example grants and subsidised R&D require special understanding in the SME scheme but are not an issue in RDEC claims. Subcontractor rules are more restrictive for RDEC claims as R&D subcontracted to other companies is not claimable.

No. There was up until 1st April 2012 when this restriction was removed.

No. You cannot claim as an R&D expenditure an expense you have not paid. You can include accrued costs, but these must be paid at the time of the claim. HMRC stated this clearly after a tribunal verdict on this issue.

Generally, no. R&D expenditure relates to revenue expenditure.

It is possible under the intangible assets regime to capitalise revenue expenditure. This expense can be claimed if it is deducted back in the tax computation or when it is amortised. The basic principle is that to include an expense it must be part of the calculation of the P&L for the year in which it is being claimed. This is quite a technical area and we can help companies navigate it.

For capital expenditure which is capital in nature, such as plant and equipment, these cannot be included in an R&D claim but if they are part of an R&D project or projects can be claimed as R&D capital allowances in the year, they are incurred at a write down of 100%.

R&D begins when you start trying to resolve scientific or technological uncertainties and ends when they are resolved. Therefore, the qualifying activities relate to directly resolving the uncertainties. A project may have multiple strands running for different lengths of time. The strands where you can claim the costs relate to the R&D activity of resolving uncertainties, not routine work on other project strands. You can claim staff costs that relate to indirect supporting activities but not EPW or subcontractor costs.

The best answer as with any number that goes in your tax return as detailed as possible. It makes preparing R&D claims a lot easier, especially if staff leave, and makes claims defendable if HMRC come calling.

Getting companies to do this can be problematic if an R&D claim is regarded as a distraction from day to day operations; but given that an average SME R&D claim is worth about £60k tax free, it is worth asking how many days of day-to-day activity do I need to clear £60k, if it is a lot it is surely worth spending some time making R&D claims as strong as possible. We have many simple non consuming approaches which can help you keep sufficient records.

In the absence of ongoing records, producing strong end of year records including costs and narratives, and being kept up to date with changes in the schemes and interpretation is invaluable.

We can help with both ongoing records, good end of year claim documents, and if it comes to it through an enquiry. Contact us today.

Yes. Anyone who says they don’t involve some work is lying or lucky (not to have been caught out doing it wrong). But it is well worth it as on average our clients have claimed over £103k each. It is worth the effort. Our Consultants do everything they can do to make the claim process as easy as possible.

The specific questions an R&D consultant answers to demonstrate a qualifying project varies. The basis is the key points in the BIS Guidelines. Good questions to consider include:

• what was the advance in knowledge or capability in an area of science or technology that was being sought?
• what was the baseline in the science or technology from which the advance was sought or in what way does the project go beyond what was the current state of knowledge or capability?
• what the R&D project was and if relevant, what the larger commercial project was?
• the particular scientific or technological uncertainties that needed to be resolved to seek the advance?
• why the knowledge or capability sought was not readily deducible by a competent professional in the field?
• when the particular uncertainties were overcome?
• how were the uncertainties overcome?
• why were the uncertainties not readily deducible by a competent technical professional in the field?
• what costs are associated with resolving the uncertainties? Are those costs qualifying?

You need to understand the context of the HMRC Guidelines to fully understand these questions. They are about more than just an individual understanding of the words. The Guidelines are lengthy and don’t even clearly explain every term but explain many of them; but if you do understand them and can describe an overall advance in a field of science or technology being attempted, and the associated scientific or technological uncertainties, you have the basis of an R&D claim. Our experienced Consultants will help simplify the process as much as possible and can relate the Guidelines to your specific industry sector and business activities.

Lots of different companies in different sectors make R&D claims. Unlike grant awards, claims are not competitive or limited to specific sectors. They key issue is this. Does the project meet the definition of R&D for tax relief purposes? This is defined in the HMRC Guidelines. We give an overview here (LINK). If you are creating new products or processes or services or improving existing ones, it makes sense to talk to one of our specialists for a free assessment. We can quickly help establish if it is worth thinking about making a claim and what is involved.

The necessary but not sufficient condition for an R&D claim is this. Does the project work involve science or technology? Science is narrowly defined as hard science (Physics, Chemistry, Biology) and work in social sciences or economics for example, does not qualify. R&D can be commercially orientated but commercial aspects of a project like market research, compliance testing, patent applications, and sales and marketing don’t qualify. Beyond that necessary condition, Science and Technology, the work has to meet the R&D Guidelines. A specialist really helps with understanding these; but broadly work cannot be routine, traditional solutions to traditional problems. It must be challenging work. It also cannot just be about using or deploying the latest technologies. You must be attempting to advance capability or knowledge about them in some way. You need a project and you need to be developing something like a new product, process, material, or technique. An advance cannot just be commercial. It must be in capability or knowledge, and it must have a broader context than just your companies own knowledge or capability. Finally, the project must have to overcome scientific or technological uncertainty. If it is just a matter of production using routine methods and techniques for example, it is not R&D.

This is a big question. We cover it on this website in the R&D Tax Claims section. But this is not exhaustive, and the easiest approach is to use our service as we can simplify everything based on our experience. We don’t recommend a DIY approach because understanding the Guidelines can be challenging. It is important to have experience and look at every claim case by case.

The most important element of the Guidelines is CIRD81900 the BIS Guidelines and paragraph 6 is the most often quoted. It is important to consider all the Guidelines as a whole. That all takes time and experience.

Yes, providing it otherwise qualifies. You don’t have to achieve a scientific or technological advance or resolve the scientific or technological uncertainties to claim. You just must be seeking to achieve the advance and resolve the uncertainties. Failed projects can be more convincing than successful ones in demonstrating that the work was innovative and challenging as opposed to routine.

No. You don’t have to achieve a scientific or technological advance or resolve the scientific or technological uncertainties to claim. You just have to be seeking to achieve the advance and resolve the uncertainties. In incomplete projects it is important in the project narrative to state the position in terms of progress and the work done in the year being claimed. You should not submit the same R&D report year after year with no update as to progress, to do so obviously raises questions about qualification. Detail is important.

The BIS Guidelines in paragraph 21 states:

21. Overall knowledge or capability in a field of science or technology can still be advanced (and hence R&D can still be done) in situations where:

• several companies are working at the cutting edge in the same field, and are doing similar work independently; or
• work has already been done but this is not known in general because it is a trade secret, and another company repeats the work; or
• it is known that a particular advance in science or technology has been achieved, but the details of how are not readily available.
  
  But this is qualified in the next paragraph by making it clear that copying for example is not R&D

Yes, providing it otherwise qualifies. Routine copying does not qualify. Our specialists can help clarify this as it requires full understanding of the Guidelines.

This is a key term in the guidelines.

BIS Guidelines P13

13. Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field. This includes system uncertainty. Scientific or technological uncertainty will often arise from turning something that has already been established as scientifically feasible into a cost-effective, reliable and reproducible process, material, device, product or service.

It is mentioned a further 10 times but is not particularly well defined.

Broadly it is a person with skills and or experience in the relevant, to the claim, field of science or technology. For example, unless a Marketing Manager has hidden skills in a software claim it is hard to treat him as a competent technical professional or even include part of his costs in a claim. His skill is marketing not science or technology. A Technical Director or Chief Technology Officer in a software company is much more likely to be the lead competent technical professional. On a project by project basis input may be needed from other technical staff to make the correct judgements. For example, was it readily deducible or not? What work was done to resolve the technological uncertainty?

Identifying and involving a competent technical professional in an R&D claim is crucial to claiming correctly.

R&D begins when you start trying to resolve scientific or technological uncertainties and ends when they are resolved. Therefore, the qualifying activities relate to directly resolving the uncertainties. A project may have multiple strands running for different lengths of time. The strands where you can claim the costs relate to the R&D activity of resolving uncertainties, not routine work on other project strands. You can claim staff costs that relate to indirect supporting activities but not EPW or subcontractor costs.

Under the SME scheme it matters very much. Companies cannot claim under the SME scheme where they are doing R&D for someone else by acting as a subcontractor. To act as a subcontractor, you must be being paid to carry out R&D, no matter what the outcome. A difference exists if you develop a product which you are paid for only if you produce the finished product. If an SME is being subcontracted to do R&D by another SME it would be the paying company’s R&D to claim. If an SME acts as a subcontractor for a Large Company, then the SME doing the work can claim, but only under the RDEC (Large Company scheme) as opposed to as an SME. Subsidised R&D cannot be claimed under the SME scheme.

Under RDEC subsidy (who pays) does not matter as a general principle only work done by the claiming company can be claimed but who pays for it does not matter. Under RDEC, R&D subcontracted to other companies cannot be claimed, only subcontracted work to individuals, groups of individuals, or allowed bodies like universities can be claimed.

Yes, for SME claims only, they matter.

If an SME receives a State Aid for an R&D project, then receiving £1 of State Aid means that none of the project costs can be included in an SME R&D claim. The project can however be claimed under RDEC providing it qualifies under the RDEC rules (Mainly work subcontracted to other companies cannot be claimed).

If a grant is not a State Aid. For example, not awarded or administered by the state, like an EU Horizon 2020 grant, or it is De Minimis and the company has not exceeded the threshold where de minimis grants are treated as state aid, then an SME can claim the grant funded element of the project under RDEC and the remainder under the SME scheme.

The award of a grant to a large company does not impact its ability to claim under RDEC.

Under the SME scheme you can claim R&D activities you subcontract out. The subcontractor must be directly involved in resolving the scientific or technological uncertainty. The work must not be routine for the subcontractor except in the case of technical testing where the knowledge from the test directly contributes to resolving the uncertainty.

The only restriction for an SME claim is that the subcontract cannot be a services agreement. A contract for services is most likely to be an EPW (Externally Provided Worker) relationship. This area of Subcontractor/EPW is a more technical area of R&D claims where advice can be valuable. A large company or SME claiming under RDEC cannot claim subcontracted costs to other companies, only individuals, groups of individuals (partnerships), or qualifying bodies like Universities.

Subject to other rules meaning the work qualifies, then the location of the subcontractor is not an issue.

An SME can only claim if they are a subcontractor engaged by a large company. They can claim under RDEC. Normally in the SME scheme it is only the company paying for the R&D work that can claim. Subject to the correct understanding of what subcontracted R&D is.

If a large company is subcontracted to do R&D, they can claim it as who pays for the work does not matter under the large company/RDEC scheme.

No. There was up until 1st April 2012 when this restriction was removed.

No. You cannot claim as an R&D expenditure an expense you have not paid. You can include accrued costs, but these must be paid at the time of the claim. HMRC stated this clearly after a tribunal verdict on this issue.

Generally, no. R&D expenditure relates to revenue expenditure.

It is possible under the intangible assets regime to capitalise revenue expenditure. This expense can be claimed if it is deducted back in the tax computation or when it is amortised. The basic principle is that to include an expense it must be part of the calculation of the P&L for the year in which it is being claimed. This is quite a technical area and we can help companies navigate it.

For capital expenditure which is capital in nature, such as plant and equipment, these cannot be included in an R&D claim but if they are part of an R&D project or projects can be claimed as R&D capital allowances in the year, they are incurred at a write down of 100%.

If R&D qualifying revenue expenditure has been capitalised as an intangible asset it can be claimed by expensing the intangible asset in the tax computation, or when it is amortised. This is a technical area where we can help. The key issue is you can only get tax relief on the asset once, and if it is expensed back in the tax computation any amortisation related to that expenditure would need to be added back in future tax computations until its amortisation is completed.

No. The only physical items claimable are consumables. If these materials go into a production model as opposed to a scrapped prototype you cannot claim that as an R&D expense because you sold it. In essence, you cannot get a double benefit. Consumable items must be transformed beyond their original condition or consumed (oil, water, or gas for example) to be claimable.

No, they are excluded from the measure of staff costs set out in the guidelines.

Yes, they can be included as a staff cost provided the staff member pays and is reimbursed providing that it is a genuine staff expense, not an attempt to claim non qualifying costs, and crucially it is reimbursed to the member of staff by the company. Expenses relating to staff that the company pays directly do not qualify.

Yes, the correct measure of staff costs includes employers NIC and pension contributions in the measure of total remuneration.

No, to include a cost it must contribute to determining a company P&L, a dividend is taken from the calculated profit. You cannot have the benefit of taking payment in dividends and the benefit from an R&D claim.

• Staff Costs
• Subcontractors
• Externally Provided Workers
• Consumables
• Software
• Clinical Trial Volunteers.
  
  Some of these costs require special treatment. Costs outside these headings as defined in the legislation do not qualify.

R&D begins when you start trying to resolve scientific or technological uncertainties and ends when they are resolved. Therefore, the qualifying activities relate to directly resolving the uncertainties. A project may have multiple strands running for different lengths of time. The strands where you can claim the costs relate to the R&D activity of resolving uncertainties, not routine work on other project strands. You can claim staff costs that relate to indirect supporting activities but not EPW or subcontractor costs.

Total salary plus employers NIC & pension contributions and any R&D related reimbursed expenses.

Not benefits in kind.

Practically, most staff costs will involve people with skills in science or technology resolving scientific or technological uncertainties in R&D projects. An amount of indirect supporting activities can be claimed if the R&D staff are supported by non-technical staff like for example IT support. But such indirect supporting staff must be on the payroll supporting the R&D team.

The most common example would be someone working as a member of staff but through a staff provider. A contract for services will exist. To be claimable they must engage in direct R&D activity, actually be doing R&D. As with any cost an assessment must be made of the portion of time that relates to qualifying activities. For an unconnected EPW (The claiming company does not control, or have the same controlling entity as the staff provider) this expense is then reduced to 65% For a connected EPW (The staff provider and claiming company are connected through shared controlling parties or control each other, control being 50% of shares plus 1) The lower of the charge between the companies and the staff providers actual staff costs for the individual will be claimable. IMPORTANTLY There must be at least a three-party relationship, an EPW cannot be self-employed (two parties). Members of staff including Directors cannot be claimed as EPWs, just the rules. EPWs must directly contribute to the R&D. These are common areas of error.

Someone to whom you subcontract out a piece of R&D. Not a contract for services (EPW) but a contract for a specified part of the R&D work. For an SME claim, any type of entity can be a subcontractor. For RDEC claims you cannot include subcontracted work done by other companies only individuals, groups of individuals or authorised bodies like universities.

A subcontractor must be directly contributing to the R&D project, they cannot be indirectly supporting the R&D. For an unconnected subcontractor (no shared or related controlling parties) the cost relating to resolving scientific or technological uncertainties can be claimed but this then has to be reduced to 65%. This is simply a rule. For connected subcontractors (the claiming company controls the subcontractor or vice versa, or they have the same controlling parties. Control being 50% plus 1 share) you claim the lower of the intercompany charge or actual costs under the following headings and following their treatment as defined in the guidelines.

• Staff Costs
• EPW
• Consumables
• Software
• Clinical Trial Volunteers

Connected by controlling parties 50% plus 1 share. One entity can control the other, they can share control, or a controlling director might also act as a self-employed subcontractor. The treatment is defined more fully in the Guidelines and each cost header in these FAQs.

This is the only category of physical expenses that can be claimed. Claims are restricted to goods consumed or transformed in R&D activities. Consumables are relatively straightforward and include transformable materials like water, fuel, and power. A consumable could also be laboratory chemical converted to a usable product due to the R&D. Such a chemical would not be excluded if it was recyclable. But if a physical item was usable in its original form after R&D it’s cost could not be claimed. The fact it was no longer new would not count as transformation just because of its use. For example, an iPad used in an R&D project could not be claimed if it still worked as an iPad after the project even if it was now second hand and worth less.

No unfortunately. Companies frequently try to include costs they feel relate to R&D activities but the rule that should be and is almost consistently applied by HMRC inspectors is if it does not specifically
fall into a category in the Act of Parliament it cannot be claimed. It is about a legal interpretation not what a claimant might think is fair and reasonable. That is the reality.

Costs that don’t qualify and that companies often try to claim include Rent, Rates, Hosting, Data costs, Telecoms, Capital Expenditure, Benefits in Kind, and even cash as a consumable.

Best advice is to stick to the headings listed. HMRC have their ways of identifying claims that don’t fit and include large amounts of non-qualifying costs. Best advice is to seek advice, take due care, and follow the rules.

We have seen some evidence of individual inspectors showing a friendly side and letting claimants include some small level of non-qualifying costs. But we were once asked to help in an enquiry where an inspector on a first claim had allowed a small data cost to be include. The company 6 years later had an enquiry and that cost was no longer small £300k+ and the inspector would not allow it when the first inspector had at a few thousand. The consequence of the friendly act was fairly harsh. Best to follow the rules.

Normal company tax return deadlines for filing and amendments.

The absolute deadline is that claims must be made within two years of the accounting period in which the R&D expenditure being claimed is incurred.

For a profitable company aware of the R&D Tax scheme it makes sense to prepare an R&D claim within 9 months and one day of the accounting period end when any tax due needs to be paid. A claim will reduce the tax due. This applies for both SME and RDEC claims.

If a company is loss making it makes sense to claim as soon as possible if an R&D Tax Credit is being claimed or an RDEC payable credit is being claimed. This helps cashflow.

HMRC do not have a KPI for claims involving tax relief, payment times depend on the processing speed of your Corporation Tax Office. These are generally good, and 4-6 weeks is not untypical. For an SME payable R&D Tax Credit the KPI is 95% in 28 days. HMRC, in recent years, 2018 & 2019, have not been achieving this and claims have been taking 12-16 weeks to get paid. No KPI exists for RDEC and recent processing has been very slow. HMRC are trying to improve processing times and we do get a weekly email on those times from HMRC through our RDCC membership.
HMRC can make checks on claims and this process does delay payment until they are satisfied with the claim detail. In some circumstances they will release interim payments as part of that process.

This is a process whereby HMRC will agree an R&D claim before the R&D work is done. It involves a process not dissimilar to an enquiry where HMRC ask questions about and examine a claim.

Companies that have claimed R&D Tax Relief before or are in a group and a group company has claimed before cannot use advanced assurance.

Companies with a turnover of over £2 million cannot use advanced assurance nor can companies that have used disclosable tax avoidance schemes or are a serious defaulter (HMRC will have advised you if you are registered as a serious defaulter).

Advanced assurance appears to be little used due to its limitations and as R&D claims are generally made retrospectively as opposed to before R&D work begins. It is often easier to provide the required detail to make the case if the work has been completed

Yes, this is an essential part of our process. You should not use an R&D consultancy that does not let you see and retain what is submitted on your behalf. It is irresponsible to allow, as company directors, something to be filed as part of a tax return that you have not seen. It would be like playing Russian Roulette to not see and be able to question and approve what is submitted on your behalf.

Under the SME scheme a company in a loss-making position after the R&D enhanced deduction is made may surrender a loss for a payable tax credit. The amount of the tax credit varies with the tax position, and the R&D enhanced expenditure may have already gained R&D tax relief, and the
maximum benefit is just over 33% of the claimed costs. HMRCs KPI for these is to pay 95% of claims within 28 days.

For accounting periods starting after 1st April 2021 a cap on payable tax credits may be introduced. It is currently under consultation. The proposed cap on a payable tax credit is 3 times a claiming companies PAYE & NIC.

This is a cashflow decision and may also involve projections. At present using a loss for tax relief is worth 19% in saved corporation tax (CT) and the rate for surrendering losses for R&D Tax Credits is 14.5%. So, if a company knows they will make a big profit in a year following a claim, and immediate cash is not required, it would make sense to carry forward a loss for greater tax relief. If a company is not going to make a profit after the next years return, including R&D, it might make sense to take an R&D Tax Credit as carrying forward losses that don’t attract relief might not make sense. This is a decision that should be considered case by case with an accountant.

Decisions can be taken and reversed within the two-year window for amending a tax return from an accounting period end.

This is only an SME claim concept (The old Large Company scheme has now been fully replaced by RDEC which does not contain enhanced expenditure).

Enhanced Expenditure is the qualifying expenditure multiplied by 230%. This is always the figure that goes into Box 660 in the CT600 in an SME R&D claim.

It is often confused with the enhanced deduction or uplift which is 130% of the qualifying expenditure.

In an R&D claim 4 different ways the same concept is described.

100% of the qualifying costs has to be in the P&L for a cost to be claimed as R&D expenditure. This 100% allows an additional 130% deduction to be made from profits or addition to losses to be made.

£1 of R&D expenditure leads to a deduction of £1.30.

It is often confused with enhanced expenditure which is the expenditure times 230% or to put it another way the 100% in the P&L plus the 130% deduction made to the P&L by the R&D claim.

Normally £1 of state aid for an R&D project means that the project cannot be claimed under the SME R&D scheme. 

But a claim can be made for the project under the large company scheme RDEC. For all the qualifying expenditure including the grant funded element. This is because an SME R&D claim is itself a generous state aid and a condition of the schemes approval by the EU was that project funding could not be increased by additional state aid.

However, a few exceptions exist & de minimis state aid is one of them. 

Firstly, with any grant it is important to find out what sort of grant it is. Check the award documents and with the awarding body. If a grant is de minimis it should say so in the award documents. Equally, if it is a state aid it should say so. This is important because different types of state aid are treated differently.

If a company is in receipt of less than €200,000 of de minimis in a rolling three year period. Then the aid does not need to be treated as a state aid when it is for an R&D project. So this means the non grant funded costs in a project can be claimed under the SME scheme. The grant funded element can be claimed under RDEC the large company scheme. This is financially beneficial.

But it is important to understand that it is the nature of the grant that is important not just the amount. A £100 state aid grant remains a state aid even if that is all the funding a company has had from government grants. It is only a de minimis grant if it is awarded as de minimis not because the amount is small.

It is also important to understand that an SME R&D claim is not a de minimis aid, it is an approved and notified state aid. So if a company had £1 million of R&D Tax Credit claims and €199,000 of de minimis aid in a three year period it would be under the de minimis threshold. All that is aggregated are the de minimis aids.

But if a company had £0 of SME R&D Tax Credits but had €250,000 of de minimis aid in the three year period it would be over the threshold. This would mean the de minimis aid would be treated as a notifiable state aid and would prevent any of the costs on a project it was for being claimed under the SME R&D scheme.

This is an area where mistakes are made. If in doubt please seek our advice.

Telephone 01483 808301 or email hello@randdtax.co.uk

Yes they do.

If a grant is awarded and administered by the EU it is not treated as a state aid. This means if SME R&D project receives a grant the non grant funded costs can be claimed under the SME R&D scheme and the grant funded element under RDEC. Horizon 2020 and Framework programs fall in this category.

But if the grant is channelled through the UK government they are treated as a state aid. £1 of state aid means none of an SMEs R&D costs on a project can be claimed under the SME scheme, the whole project moves to the less lucrative RDEC scheme. ERDF (European Regional Development Fund) is an example of an EU fund controled by the UK government.

Yes, under the SME scheme loss making companies can claim and have the choice of either a payable R&D tax credit or carrying a loss forward.

For a large company or a small company claiming under RDEC, a loss-making company can claim an RDEC. A payable RDEC is calculated based on several caps and offset. Providing a loss-making company has enough PAYE on R&D staff to cover the RDEC amount an RDEC will be paid. If it does not RDEC can be used for other tax liabilities or group relief. If RDEC remains after these offsets it is carried forward to the next year and the same steps are repeated. RDEC is more straightforward for companies where the corporation tax due is greater than the RDEC as the RDEC can be used to offset CT due or already paid.

This is a cashflow decision and may also involve projections. At present using a loss for tax relief is worth 19% in saved corporation tax (CT) and the rate for surrendering losses for R&D Tax Credits is 14.5%. So, if a company knows they will make a big profit in a year following a claim, and immediate cash is not required, it would make sense to carry forward a loss for greater tax relief. If a company is not going to make a profit after the next years return, including R&D, it might make sense to take an R&D Tax Credit as carrying forward losses that don’t attract relief might not make sense. This is a decision that should be considered case by case with an accountant.

Decisions can be taken and reversed within the two-year window for amending a tax return from an accounting period end.

Research and Development Expenditure Credit. This is generally for large companies that don’t pass the SME threshold tests. In some circumstances SMEs might claim under RDEC.

The accountancy treatment of RDEC is completely different than an SME R&D claim. Some Accountants may have experience of either scheme or particularly RDEC. This is occasionally confused with the SME R&D Tax Credit. Both are credits and sound similar which is unhelpful.

RDEC is an “above the line” measure. The RDEC should be added to the accounts as a form of income and is taxed. RDEC does not involve enhancement. This can be confusing as the old Large Company scheme it replaced did.

If accounts have been filed, the RDEC should be added in the tax computation (complete opposite of the SME enhanced deduction).

A payable RDEC is calculated through several offsets and caps which should be set out in the tax computation.

As it is rare many tax software packages do not accurately or easily reflect an RDEC claim correctly.

Other than the calculation RDEC has different rules around subcontracted and subsidised R&D than the SME scheme.

Normal company tax return deadlines for filing and amendments.

The absolute deadline is that claims must be made within two years of the accounting period in which the R&D expenditure being claimed is incurred.

For a profitable company aware of the R&D Tax scheme it makes sense to prepare an R&D claim within 9 months and one day of the accounting period end when any tax due needs to be paid. A claim will reduce the tax due. This applies for both SME and RDEC claims.

If a company is loss making it makes sense to claim as soon as possible if an R&D Tax Credit is being claimed or an RDEC payable credit is being claimed. This helps cashflow.

This is well covered in our section on “benefits” under R&D Tax Claims. We suggest trying our estimator tool. In less specific terms for years where the corporation tax rate is 19% a claim that just generates tax relief is worth 24.7% of qualifying costs, and R&D Tax Credit Claim is worth between 18.85% & 33.35% depending on the tax position, and RDEC is worth 9.72% assuming it is payable after caps and offsets.

HMRC do not have a KPI for claims involving tax relief, payment times depend on the processing speed of your Corporation Tax Office. These are generally good, and 4-6 weeks is not untypical. For an SME payable R&D Tax Credit the KPI is 95% in 28 days. HMRC, in recent years, 2018 & 2019, have not been achieving this and claims have been taking 12-16 weeks to get paid. No KPI exists for RDEC and recent processing has been very slow. HMRC are trying to improve processing times and we do get a weekly email on those times from HMRC through our RDCC membership.
HMRC can make checks on claims and this process does delay payment until they are satisfied with the claim detail. In some circumstances they will release interim payments as part of that process.

In most circumstances. But under the SME scheme if existing losses or other reliefs, group or charity for example, have relieved profits then all an R&D claim might to is replace those reliefs. It is important to consider the specifics of the tax position early in an R&D claim to see if a claim will be worthwhile in cash terms. Sometimes increasing/preserving losses can be as valuable as gaining cash if those losses can be used for tax relief. Under the RDEC steps involving caps and offsets it is possible that all a claim will do is create an RDEC to carry forward. Turning this into cash will depend on future years calculations through the RDEC steps. RDEC will always be cashflow positive for profitable companies as step one is offset against corporation tax.

This is a process whereby HMRC will agree an R&D claim before the R&D work is done. It involves a process not dissimilar to an enquiry where HMRC ask questions about and examine a claim.

Companies that have claimed R&D Tax Relief before or are in a group and a group company has claimed before cannot use advanced assurance.

Companies with a turnover of over £2 million cannot use advanced assurance nor can companies that have used disclosable tax avoidance schemes or are a serious defaulter (HMRC will have advised you if you are registered as a serious defaulter).

Advanced assurance appears to be little used due to its limitations and as R&D claims are generally made retrospectively as opposed to before R&D work begins. It is often easier to provide the required detail to make the case if the work has been completed

Under the SME scheme it matters very much. Companies cannot claim under the SME scheme where they are doing R&D for someone else by acting as a subcontractor. To act as a subcontractor, you must be being paid to carry out R&D, no matter what the outcome. A difference exists if you develop a product which you are paid for only if you produce the finished product. If an SME is being subcontracted to do R&D by another SME it would be the paying company’s R&D to claim. If an SME acts as a subcontractor for a Large Company, then the SME doing the work can claim, but only under the RDEC (Large Company scheme) as opposed to as an SME. Subsidised R&D cannot be claimed under the SME scheme. Under RDEC subsidy (who pays) does not matter as a general principle only work done by the claiming company can be claimed but who pays for it does not matter. Under RDEC, R&D subcontracted to other companies cannot be claimed, only subcontracted work to individuals, groups of individuals, or allowed bodies like universities can be claimed.

Yes, for SME claims only, they matter.

If an SME receives a State Aid for an R&D project, then receiving £1 of State Aid means that none of the project costs can be included in an SME R&D claim. The project can however be claimed under RDEC providing it qualifies under the RDEC rules (Mainly work subcontracted to other companies cannot be claimed).

If a grant is not a State Aid. For example, not awarded or administered by the state, like an EU Horizon 2020 grant, or it is De Minimis and the company has not exceeded the threshold where de minimis grants are treated as state aid, then an SME can claim the grant funded element of the project under RDEC and the remainder under the SME scheme.

The award of a grant to a large company does not impact its ability to claim under RDEC.

To be an SME a company must pass two tests.

1. Under 500 employees.

Pass move to test 2, fail you are a large company for R&D purposes.

2. Below one of the following. Balance sheet €86 million and turnover €100 million.

Below on one or both thresholds you are an SME. Over on both you are a large company.

The picture is slightly muddied by the fact that linked and partner enterprises may have to be included and in some places different types of owning companies or individuals are treated differently. A specialist helps with fully understanding these rules and definitions.

The flowchart from HMRC is a useful starting point in finding out what should be considered.

If the change is organic the status does not change until the second year where it has also been achieved. So, if an SME organically becomes a large company in year 1 and is also a large company in year 2 it could make an SME claim in year 1 and would need to claim under RDEC is year 2.

If the change is due to a takeover or sale of a group company the change in status is immediate.

We always recommend that an SME being taken over by a large company should consider shortening an accounting period to the day before the takeover to get the benefit of being able to make an SME R&D claim for the period before the takeover. What matters is where a company is in terms of the SME test thresholds at the end of an accounting period.

One of the key conditions to be satisfied is that a company is trading as a going concern. If a company is liquidated or its registration ceases it cannot make an R&D claim. If any control can be exerted over these matters for example absorbing a bought limited company, it makes sense to make the R&D claim before the status is changed otherwise the opportunity is lost forever to claim.

The key issue is: “is the entity subject to UK corporation Tax”. LLPs don’t pay corporation tax, and charities are normally exempt. Some categories of not for profits do qualify like Community Interest Companies who would pay Corporation Tax on profits if they made them.

To claim an entity must be subject to corporation tax. Sole Traders and Partnerships made up of individuals do not qualify.

A joint venture/partnership made up of limited companies would qualify but the individual limited companies would claim depending on how the costs were split in the partnership.

No. Companies in a group would claim as limited companies. Group relief might be a factor to consider in calculating the claim benefit. Groups must be considered collectively in terms of assessing SME status. Group companies cannot apply for advanced assurance if another group company has already made an R&D claim. Group relief is one of the steps in assessing a payable RDEC.

No. You cannot claim as an R&D expenditure an expense you have not paid. You can include accrued costs, but these must be paid at the time of the claim. HMRC stated this clearly after a tribunal verdict on this issue.

Generally, no. R&D expenditure relates to revenue expenditure.

It is possible under the intangible assets regime to capitalise revenue expenditure. This expense can be claimed if it is deducted back in the tax computation or when it is amortised. The basic principle is that to include an expense it must be part of the calculation of the P&L for the year in which it is being claimed. This is quite a technical area and we can help companies navigate it.

For capital expenditure which is capital in nature, such as plant and equipment, these cannot be included in an R&D claim but if they are part of an R&D project or projects can be claimed as R&D capital allowances in the year, they are incurred at a write down of 100%.

If R&D qualifying revenue expenditure has been capitalised as an intangible asset it can be claimed by expensing the intangible asset in the tax computation, or when it is amortised. This is a technical area where we can help. The key issue is you can only get tax relief on the asset once, and if it is expensed back in the tax computation any amortisation related to that expenditure would need to be added back in future tax computations until its amortisation is completed.

No. The only physical items claimable are consumables. If these materials go into a production model as opposed to a scrapped prototype you cannot claim that as an R&D expense because you sold it. In essence, you cannot get a double benefit. Consumable items must be transformed beyond their original condition or consumed (oil, water, or gas for example) to be claimable.

No, they are excluded from the measure of staff costs set out in the guidelines.

Yes, they can be included as a staff cost provided the staff member pays and is reimbursed providing that it is a genuine staff expense, not an attempt to claim non qualifying costs, and crucially it is reimbursed to the member of staff by the company. Expenses relating to staff that the company pays directly do not qualify.

Yes, the correct measure of staff costs includes employers NIC and pension contributions in the measure of total remuneration.

No, to include a cost it must contribute to determining a company P&L, a dividend is taken from the calculated profit. You cannot have the benefit of taking payment in dividends and the benefit from an R&D claim.

R&D begins when you start trying to resolve scientific or technological uncertainties and ends when they are resolved. Therefore, the qualifying activities relate to directly resolving the uncertainties. A project may have multiple strands running for different lengths of time. The strands where you can claim the costs relate to the R&D activity of resolving uncertainties, not routine work on other project strands. You can claim staff costs that relate to indirect supporting activities but not EPW or subcontractor costs.

Total salary plus employers NIC & pension contributions and any R&D related reimbursed expenses.

Not benefits in kind.

Practically, most staff costs will involve people with skills in science or technology resolving scientific or technological uncertainties in R&D projects. An amount of indirect supporting activities can be claimed if the R&D staff are supported by non-technical staff like for example IT support. But such indirect supporting staff must be on the payroll supporting the R&D team.

The best answer as with any number that goes in your tax return as detailed as possible. It makes preparing R&D claims a lot easier, especially if staff leave, and makes claims defendable if HMRC come calling.

Getting companies to do this can be problematic if an R&D claim is regarded as a distraction from day to day operations; but given that an average SME R&D claim is worth about £60k tax free, it is worth asking how many days of day-to-day activity do I need to clear £60k, if it is a lot it is surely worth spending some time making R&D claims as strong as possible. We have many simple non consuming approaches which can help you keep sufficient records.

In the absence of ongoing records, producing strong end of year records including costs and narratives, and being kept up to date with changes in the schemes and interpretation is invaluable.

We can help with both ongoing records, good end of year claim documents, and if it comes to it through an enquiry. Contact us today.

Yes, this is an essential part of our process. You should not use an R&D consultancy that does not let you see and retain what is submitted on your behalf. It is irresponsible to allow, as company directors, something to be filed as part of a tax return that you have not seen. It would be like playing Russian Roulette to not see and be able to question and approve what is submitted on your behalf.

Through either an original or amended company tax return. With the R&D numbers accurately entered in the tax computation and CT600, plus the R&D narratives and costs attached.

We prepare all of this as part of our full service and your own accountant files the return as we have no interest in disrupting that relationship or hiding what is being submitted.

We will file returns if required but generally we like your existing accountant to file the claim. We calculate the numbers and give him or her all the advice required to file the claim.

For the SME Scheme – In the Corporation Tax adjustments to the accounts make a deduction of 130% of the qualifying R&D expenditure. Different tax packages handle this differently. In most you just deduct 130% and some you add back 100% then deduct 230%. The net effect is to deduct 130% of the qualifying expenditure.

Make a note showing the qualifying expenditure, the enhanced deduction (qualifying expenditure * 130%, and the enhanced expenditure (qualifying expenditure * 230%).

The primary purpose of the enhanced expenditure number is that this is the number that goes in CT600 box 660. This number is often confused with the enhanced deduction in the tax computation but remember 100% expense is already in the accounts in most circumstances, so the computation shows the additional deduction.

If the impact of the claim is a refund of tax overpaid, most software packages work it out and if not, it will be the enhanced deduction multiplied by the tax rate.

If a claim generates a loss and the company wishes to take an R&D Tax Credit, this is taken by surrendering the loss in the statement of losses and creates a repayment of the R&D Tax Credit.

The credit is calculated on the lower of the enhanced loss (the loss in the period after the 130% deduction) and the enhanced expenditure (qualifying expenditure times 230%, this is why this number goes in CT600 box 660). A claimant can take less than the maximum losses available if they wish to retain losses. But if they take the maximum this loss is surrendered.

The R&D Tax Credit goes in boxes 530 and 875 of the CT600.

We are very experienced at all of this. Most Tax Software packages from time to time have R&D related bugs so cannot be relied upon if you don’t understand the calculations. Please contact us today and we can help you get every aspect of your claim right though our great service.

Box 40 Check if a repayment is due.

Box 530 If an R&D Tax Credit is being claimed enter the amount.

Box 650 Check if an SME, check.

Box 660 Enhanced Expenditure is qualifying cost times 230% (Most Common error is getting this wrong)

Box 875 Enter R&D Tax Credit Amount.

Box 920-940 Enter Bank Details

IMPORTANT. When filing attach claim supporting documents narratives and project costs.

This is only an SME claim concept (The old Large Company scheme has now been fully replaced by RDEC which does not contain enhanced expenditure).

Enhanced Expenditure is the qualifying expenditure multiplied by 230%. This is always the figure that goes into Box 660 in the CT600 in an SME R&D claim.

It is often confused with the enhanced deduction or uplift which is 130% of the qualifying expenditure.

In an R&D claim 4 different ways the same concept is described.

100% of the qualifying costs has to be in the P&L for a cost to be claimed as R&D expenditure. This 100% allows an additional 130% deduction to be made from profits or addition to losses to be made.

£1 of R&D expenditure leads to a deduction of £1.30.

It is often confused with enhanced expenditure which is the expenditure times 230% or to put it another way the 100% in the P&L plus the 130% deduction made to the P&L by the R&D claim.

Research and Development Expenditure Credit. This is generally for large companies that don’t pass the SME threshold tests. In some circumstances SMEs might claim under RDEC.

The accountancy treatment of RDEC is completely different than an SME R&D claim. Some Accountants may have experience of either scheme or particularly RDEC. This is occasionally confused with the SME R&D Tax Credit. Both are credits and sound similar which is unhelpful.

RDEC is an “above the line” measure. The RDEC should be added to the accounts as a form of income and is taxed. RDEC does not involve enhancement. This can be confusing as the old Large Company scheme it replaced did.

If accounts have been filed, the RDEC should be added in the tax computation (complete opposite of the SME enhanced deduction).

A payable RDEC is calculated through several offsets and caps which should be set out in the tax computation.

As it is rare many tax software packages do not accurately or easily reflect an RDEC claim correctly.

Other than the calculation RDEC has different rules around subcontracted and subsidised R&D than the SME scheme.

Under the SME scheme you can claim R&D activities you subcontract out. The subcontractor must be directly involved in resolving the scientific or technological uncertainty. The work must not be routine for the subcontractor except in the case of technical testing where the knowledge from the test directly contributes to resolving the uncertainty.

The only restriction for an SME claim is that the subcontract cannot be a services agreement. A contract for services is most likely to be an EPW (Externally Provided Worker) relationship. This area of Subcontractor/EPW is a more technical area of R&D claims where advice can be valuable. A large company or SME claiming under RDEC cannot claim subcontracted costs to other companies, only individuals, groups of individuals (partnerships), or qualifying bodies like Universities.

An SME can only claim if they are a subcontractor engaged by a large company. They can claim under RDEC. Normally in the SME scheme it is only the company paying for the R&D work that can claim. Subject to the correct understanding of what subcontracted R&D is.

If a large company is subcontracted to do R&D, they can claim it as who pays for the work does not matter under the large company/RDEC scheme.

The biggest difference is the accountancy handling. An SME R&D claim generates an enhanced deduction which reduces profits, creates losses or increases losses. An SME claim is purely a tax adjustment in the accounts and not taxed. An RDEC claim is a completely different mechanism, as it is a straight percentage of the qualifying cost treated as income. This increases profits, and potentially could turn a loss into a profit or reduces losses. RDEC involves an “above the line” accounts entry and as such is taxed. Getting an R&D Tax Credit is more straightforward than a payable RDEC which involves a multiple step process of offsets and caps. RDEC does not involve enhanced expenditure.

In terms of qualification the Guidelines are the same, but some issues are treated differently for example grants and subsidised R&D require special understanding in the SME scheme but are not an issue in RDEC claims. Subcontractor rules are more restrictive for RDEC claims as R&D subcontracted to other companies is not claimable.

12% of R&D expenditure is treated as income.

If RDEC is set against corporation tax or can be used to gain a payable credit, or other tax offsets it is effectively worth 9.72% of the qualifying expenditure.

How do I show RDEC in my accounts?

RDEC should be shown in the years accounts as income if they have not been filed. Accounts only need adjusting if the amount is material. If the amount is not it can be shown in the next years accounts and removed in the tax computation, as an RDEC must be claimed in the return for the year in which the expenditure is incurred and determines the P&L.

Crucially completely differently than an SME claim, no enhancement. You need to apply the correct rates for amendable periods this is 11% or from 1st January 2018 12%.

You need to take the RDEC amount through the steps process, the first of which is offset against Corporation Tax Due until either no RDEC remains or it is carried forward as RDEC.

The steps are listed on the HMRC site:

• The credit is first used to discharge the CT liability of the claimant company for the same accounting period.
• The balance may be subject to an adjustment to reduce the amount available to a net of tax amount which is available to discharge future CT liabilities.
• Any balance remaining is capped by the PAYE/NIC of the R&D staff (with no restriction for time spent on qualifying R&D activity) and externally provided workers provided by the same group as the claimant (restricted to the proportion of time spent on qualifying R&D activity). Any amount which exceeds the cap is carried forward and treated as an expenditure credit for the next accounting period.
• The amount remaining that can potentially be a payable credit then discharges corporation tax liabilities for any other period.
• If the company is a member of a group, it may surrender any amount remaining for a corresponding accounting period.
• The payable credit element remaining is applied in discharging any other outstanding liability of the company to HMRC.

Not in our experience. This is why expert advice is important.

Yes, fraud has been identified as an issue around R&D claims by the Government. This has led to proposed changes in the scheme. We don’t want frauds to damage the great scheme. We are Money Laundering Aware and take an ethical stance including walking away from clients that refuse to take the correct advice. I would caution anyone from getting involved with a Consultancy that does not run these essential checks and behave ethically.

Yes, we do. It is listed in our Terms of Engagement and available to any potential client on request.

We don’t publish our fees on the website. We would rather talk to you and quote. A big percentage on a small claim is still not very much money, while the same on a big claim can get silly. Our fee is generally a percentage of the benefit. The benefit might be: Tax Relief, either tax refunded or not paid. R&D Tax Credits. Net RDEC credit. Rarely, claims just increase losses but we always discuss these situations first. We need to see tax computations and have an idea on qualifying costs to know.

The best answer as with any number that goes in your tax return as detailed as possible. It makes preparing R&D claims a lot easier, especially if staff leave, and makes claims defendable if HMRC come calling.

Getting companies to do this can be problematic if an R&D claim is regarded as a distraction from day to day operations; but given that an average SME R&D claim is worth about £60k tax free, it is worth asking how many days of day-to-day activity do I need to clear £60k, if it is a lot it is surely worth spending some time making R&D claims as strong as possible. We have many simple non consuming approaches which can help you keep sufficient records.

In the absence of ongoing records, producing strong end of year records including costs and narratives, and being kept up to date with changes in the schemes and interpretation is invaluable.

We can help with both ongoing records, good end of year claim documents, and if it comes to it through an enquiry. Contact us today.

Yes, for both our clients as part of our full service, and those that claim on their own and then need help to navigate an HMRC enquiry as a separate service.

It sounds like a cliché, but enquiries are best avoided by doing a thorough job, taking due care in line with the Guidelines, taking good advice, claiming accurately and conservatively and avoiding clear and obvious errors. Errors attract enquiries.

The two issues that cause enquiries that are hard to stomach are:

1. Accountants forgetting to attach the supporting documentation that has been prepared to the tax return. This is a big own goal.
2. Making filing errors in the calculation of the R&D claim benefit. Experience of this is limited. Tax software is sometimes not 100% correct. You do need to have experience of filing or help from someone that does to file correctly.

We do everything possible to reduce the possibility of any type of error & claim correctly

Potentially, the same rules apply as to any tax return error. The key deciding factors include; Was the error deliberate? Was it concealed? And was due care taken in preparing the claim?

On a sliding scale if an error is deliberate and concealed fines can be large, 100% of the underpayment of tax for example. For a smaller mistake, that you acknowledged and helped correct in a claim where due care is taken HMRC will often not raise a fine or suspend a smaller fine. It is very much case by case. The best advice is if you do make a mistake, is to acknowledge it, correct it and if possible, explain it and what measures you will put in place to make sure it won’t happen again.

Due care is important in and R&D claim. It is important that the claiming company understands the rules and works collaboratively with their R&D consultant to make the correct judgements. This is important. Anyone claiming to be able to “do an R&D claim for you without your input” is selling snake oil. Rest assured if it goes wrong HMRC will want to know why from the claiming company.